China’s quota system restricting foreign movie imports to 34 titles a year on a revenue-sharing basis will open up further in 2017-2018, a senior producer and industry adviser said, emphasizing that the country’s filmmakers need to be ready to face the challenge of greater Hollywood competition.

“The China import quota share will open up in 2017-2018. Chinese filmmakers should be ready for that,” Lu Hongshi, vp of the China Movie Channel CCTV-6, told a panel at the Beijing International Film Festival on Wednesday.

His remarks were shared on social networking site qq.com and repeated widely in local media.

China signed an agreement on its current quota system with the World Trade Organization in 2012, valid for five years. This means the second round of negotiations will start around Feb. 17, 2017, explained Lu, who has also produced numerous films, including last year’s box office hit Finding Mr Right, directed by Xue Xiaolu, with Bill Kong and Mathew Tang.

He was speaking at a panel at Chinese capital's top film event, which opened on Wednesday with a gala red carpet at the National Center for the Performing Arts, known colloquially as “the Egg,” in downtown Beijing.

The recent dominance of domestic films in the Chinese market was mainly because of the quota system, Lu said. “If it is opened up fully, the result can’t be imagined,” he added.

Hollywood’s goal is not to “further open up” the Chinese film market but to “completely open it up,” he also suggested.

China raised the number of foreign films that can be imported on a revenue-sharing basis to 34 from 20 in 2012, and industry sources have told THR recently that the quota looks set to be increased by 10 moew movies to include “prestige,” art-house movies and Oscar winners.

These movies don’t significantly threaten the box office of domestic films but help China sweeten its relationship with Hollywood and meet its World Trade Organization obligations.

Slow growth or even stagnation in the U.S. film market made overseas expansion essential, and Europe and Japan were saturated, so U.S. companies were looking to emerging markets like China for “opportunities to explode,” Lu said.

The strong growth of the Chinese market -- box office is expected to reach nearly $5 billion this year, with 25,000 screens -- means the U.S. often has to compete with China on its own terms. “Therefore, leveraging the Chinese market is the Chinese dream of the Americans. They will try all their best to fight for it,” said Lu.

There have been plenty of signs recently that Hollywood is pushing for a greater share of the China market.

Making visits to the China last month, Scarlett Johansson took to the red carpet in Beijing, Andrew Garfield got on his bike around the Forbidden City, and Johnny Depp hugged everyone he met in the city’s art district. Sci-fi thriller Transcendence will open in China as a day-and-date release with the United States on Friday.

As things stand, the Chinese government and filmmakers would do their best to avoid things opening up too quickly, which could be a disaster for domestic films, argued Lu.

“On the whole, it is almost sure that China's import share [for foreign films] will further open up, but to what extent can't be [predicted]. It depends on the negotiations,” he said.

He said in the face of a potential Hollywood blitz, domestic filmmakers needed to strive to make better films that might have the potential to travel -- hence the Film Bureau’s recent emphasis on movies like Golden Bear-winning Black Coal, Thin Ice and Zhang Yimou’s forthcoming Coming Home.

“These films have the necessary quality and plot and are not purely commercial films,” said Lu.

He pointed to the lessons of Taiwan, where domestic films accounted for only 0.5 percent after it opened up in 2002. Because of more movies by mainland Chinese directors, the share of local films is now 15 percent, but it’s still at quite a disadvantage.

“The top people from the Film Bureau understand that we won’t succeed if we try to compete with Hollywood on special effects. We can only compete on story and emotions. Only this way can we help domestic films. Coming Home made Steven Spielberg cry,” said Lu, without elaborating further.

The past few months have seen a flurry of tie-ups between U.S. and China companies.

This week, China’s state-owned film company China Film Group made an “eight-figure” equity investment in two forthcoming projects by Thomas Tull’s Legendary Entertainment feature-film projects, Seventh Son and Warcraft.

The investment marked the first time the state film colossus China Film has taken a stake in Hollywood films.

Shanghai Media Group, China's second biggest media group, signed a multi-year deal with Walt Disney Studios to co-develop Disney-branded movies for China and elsewhere, while Huayi Brothers is planning to inject up to $150 million into former Warner Bros' chief Jeff Robinov's Studio 8.

And there is strong speculation -- hotly disputed by the Film Bureau and by industryites on the mainland -- that a second import license has effectively been granted to the state-backed China National Culture & Art Corporation (CNCAC), which is linked to the Ministry of Culture.

Chris Lee, former head of Columbia TriStar Pictures, has been named president of China Railsmedia Group, a company that will help the new importer and distributor acquire Hollywood films.

The biggest challenge when it comes to getting a movie into the Chinese market is censorship, and this remains a problem for both domestic and overseas filmmakers.

Movies like 300: Rise of an Empire have not been approved, while Chinese director Jia Zhangke’s Cannes-winning film A Touch of Sin is still waiting for approval many months after its release internationally.